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Cash-flow business taxation revisited: bankruptcy and asymmetric information

International tax and public finance, 2022-08, Vol.29 (4), p.922-952 [Peer Reviewed Journal]

The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 ;The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021. ;ISSN: 0927-5940 ;EISSN: 1573-6970 ;DOI: 10.1007/s10797-021-09696-9

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Title:
Cash-flow business taxation revisited: bankruptcy and asymmetric information
Author: Boadway, Robin ; Sato, Motohiro ; Tremblay, Jean-François
Subjects: Adverse selection ; Asymmetric information ; Bankruptcy ; Business Taxation/Tax Law ; Capital costs ; Capital markets ; Cash flow ; Companies ; Corporate taxes ; Economics ; Economics and Finance ; Efficiency ; Entrepreneurs ; Interest rates ; International taxation ; Moral hazard ; Neutrality ; Present value ; Public Finance ; Risk exposure ; Tax credits ; Tax rates ; Taxation
Is Part Of: International tax and public finance, 2022-08, Vol.29 (4), p.922-952
Description: We study the effects of cash-flow taxation on firms’ entry and investment decisions when there is bankruptcy risk and when banks face asymmetric information problems in financing heterogeneous firms. When there is moral hazard, firms under-invest, while with adverse selection too many firms enter. Cash-flow taxation applying to both real and financial cash flows corrects these distortions by inducing more investment in rent-generating projects where moral hazard exists and reducing firm entry under adverse selection. Our results in the moral hazard case depend on the tax losses of bankrupt firms accruing to the banks. If bankrupt firms retain tax losses, the cash-flow corporate tax is neutral as in Bond and Devereux (J Public Econ 87:1291–1311, 2003).
Publisher: New York: Springer US
Language: English
Identifier: ISSN: 0927-5940
EISSN: 1573-6970
DOI: 10.1007/s10797-021-09696-9
Source: ProQuest Central

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Cash-flow business taxation revisited: bankruptcy and asymmetric information

The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 ;The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021. ;ISSN: 0927-5940 ;EISSN: 1573-6970 ;DOI: 10.1007/s10797-021-09696-9

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